Lost Cash ISA Allowance during Transfer

LHouseley

I have a problem with an ISA Transfer that I need advice on.

I held a flexible Cash ISA with TSB that had a low interest rate (1.6%) and wanted to change it to one of the cash ISAs that MSE recommended: Skipton Cash ISA (5%).

I had used up 2 years of allowance (40k) but had withdrawn money recently. My balance was just £1,450 with a total allowance of around £41,000. I intended to put all the money back in during this tax year, and to further use the ISA next year, gaining over £60k allowance.

I called and asked BOTH providers, in very specific detail, if I could move the Cash ISA over BEFORE topping up to the maximum allowance. I asked if I could move both my balance as it existed (£1,450) and unused allowance NOW, and keep the £41,000 allowance. And then I would top up the account in its new home at Skipton before April. Both providers assured me that I could and that I would NOT lose my allowance during the transfer.

So I did it, the account has moved this week and the old TSB Isa closed... and of course I have lost my allowance. I now only have £20,000 from this year available.

I am furious as I had worked hard to gain the allowance and would not have moved if there was ANY chance of losing it. I could have easily waited, and topped up the account at TSB before moving.

Now both providers are backtracking and saying that it was never possible to do so. TSB have said that they would have needed to be asked for some kind of special permission from Skipton before the transfer, and Skipton are saying that I was given bad advice (by them) and they are sorry but now that the TSB account has been closed (which is of course fundamental to the transfer) I have no way of recovering the allowance.

What I am especially baffled by is that I clearly explained my allowance and that the current balance was below that - I gave both banks clear figures and explanation and also was very clear with the question about whether I should wait before moving. And both gave me the SAME wrong answer.

What recourse do I have? Both have apologised but I am left having lost my hard-earned ISA allowance that I do genuinely need and had intended to use. Is there anything I can do?

eskbanker

LHouseley said:

What recourse do I have? Both have apologised but I am left having lost my hard-earned ISA allowance that I do genuinely need and had intended to use. Is there anything I can do?

From the HMRC ISA perspective, what's happened is irreversible*, but as you were given erroneous information by both providers and acted on it to your detriment, you would seem to have cause for complaint, and they ought to make some sort of token gesture of goodwill to go with their apologies.

It's unclear how you 'genuinely need' the higher allowance but you could attempt to quantify any unmitigable 'losses' arising specifically from any incremental taxation and cite that, although they're not actually under any obligation to address that.

* Edit: actually it may be reversible if you're still within a cooling-off period, when did you open the Skipton ISA?

refluxer

Having to replace withdrawn cash in the same cash ISA before transferring to a cash ISA with an alternative provider is a key rule for flexible cash ISAs so I'm surprised that the banks didn't give you that advice although, as is often the case with ISAs judging by posts on this forum, even bank employees don't always know the exact rules !

From : https://www.moneysavingexpert.com/savings/flexible-isas/

You must replace the money in the same ISA

The key rule is you must replace the money in the same ISA account you took it out from, though you are allowed to withdraw from a flexible cash ISA and replace it in a flexible stocks and shares ISA or flexible innovate finance ISA. 

You must surely have some comeback if you've been given bad advice - do you have any of this written down ?

Its worth noting that any withdrawn cash has to be replaced within the same tax year so I think you'd have only been able to replace the withdrawn ~£39.5k if you'd withdrawn it since April 6th this year - is that the case ?

LHouseley

Thank You Refluxer,
Yes - I withdrew the cash in May of this year and intended to replace it before the years end. Of course now I wish I had waited and done this before transferring.
I had specifically asked if I needed to replace the money in the existing ISA or if I could do it once it had transferred. I dont know a huge amount about ISAs but I had figured out that that was the thing to get confirmed. So I am very surprised both banks gave me the incorrect answer.
I have nothing in writing but have notes of the calls I made. Skipton have been quick to apologise and admit they gave me the wrong advice. 

LHouseley

Thank You Eskbanker,
I will check out the cooling off period with Skipton, but I imagine the bigger problem is that the TSB account is closed, meaning I can't reverse the transfer or recover the allowance.
I will see what both TSB and Skipton offer in terms of recompense. As you say, it is difficult to demonstrate a 'need' for the allowance. Its just very frustrating after trying to preserve it and trusting the advice.

Reed_Richards

I think that there is a minimum cooling of period of 14 days, regardless of the ISA provider.  If you are within that time period it should not matter that the TSB account was closed.

LHouseley

Thank You @Reed_Richards. I did go back to Skipton and enquire about a cooling off period. After a lot of discussion they did agree that yes I should have one - 14 days as you said. But when I went back to TSB they said that this did not mean they could reopen the account - a new account would have to be opened it the balance were transfered back and that the lost allowance could not be reinstated. It seems it is irrecoverably lost. 

Reed_Richards

I've had a look at the rules here: https://www.gov.uk/guidance/transfer-an-isa-if-youre-an-isa-manager#cancellation-of-a-transfer and unfortunately I think the TSB are within their rights not to let you re-open your old account.  It seems unfair because if you has left even £1 in the old account (a partial transfer) then everything would have been fine; indeed that is what they should have advised you to do.  Your only hope is to persuade the TSB that they are liable for giving you the wrong advice and in order to put things right they should reverse the transfer and reinstate your old account.     

masonic

My understanding is that a cancelled flexible ISA transfer (post-being completed) does not reinstate already lost flexible withdrawals from previous year subscriptions, but there is no clear guidance or worked examples related to this.

However, I'd have thought this avenue was at least worthy of being explored, although this situation is not exactly as described:

https://www.gov.uk/guidance/transfer-an-isa-if-youre-an-isa-manager#cash-withdrawn-in-error-as-a-result-of-incorrect-transfer-advice-by-an-isa-manager

Edit: Confirming that there were no new provisions regarding ISA transfers that would help the OP in The Individual Savings Account (Amendment) Regulations 2016, which introduced ISA flexibility.

Reed_Richards

You could argue that the cash withdrawn in error was the cash withdrawn from the flexible ISA before it was transferred because the OP was advised that they could replace this cash into the new flexible ISA.  That was certainly incorrect transfer advice.

The correct advice from TSB was that the OP should only make a partial ISA transfer. 

LHouseley

Thank You @Reed_Richards and @Masonic, this is great advice. Ive spoken with HMRC re the above statement you have highlighted from their website and they have suggested I write to them, with gathered evidence that I acted on incorrect advice. Skipton have been very honest in admitting that I was told the wrong advice (their customer service team listened to my initial phone call) so I am hoping they will put that in writing for me. HMRC say that they will review it and if my allowance could be reinstated it would be done in the new tax year as the new allowance is released. So, I shall do that and keep my fingers crossed. Given HMRC lead times... I dont think I will hear back for a while.